on 07/12/17 12:50
Exclusive Interview of Base58 Capital
As part of our CryptoCurrency month, we recently spoke with Tommaso Bonanata, Head of Investment Management at Base58 Capital, an independent Asset management company built by investors, for investors focusing on the Cryptoassets space. By blending financial expertise with Blockchain technology knowhow, Base58 Capital bridges the gap between the traditional and the digital world.
What are the 3 pieces of advice you would give to a first-time investor in cryptocurrency?
I don’t think there are any specific differences in the investment approach to cryptoassets. As with any other investments or asset classes, the number one rule is to understand what you are buying, why you are buying it, and what is the level of risk you are comfortable with. The cryptoasset universe is new and as such quite volatile. Investors should approach the space by limiting their overall portfolio exposure, diversifying their holdings and fasten their seatbelts during periods of high volatility.
What are the 3 main risks you should be aware of when investing in cryptocurrency?
Hype Risk - As the sector has entered a so-called “Hype Phase,” Blockchain-based projects are being launched daily. This trend creates a “Hype Risk” as most of these projects will not go mainstream nor survive in the long run. Investors should do their homework before backing any venture and diversify into high-quality projects and teams.
Counterparty Risk - Remember, if you don’t hold your private keys, you don’t own any coins. As we have seen in the past, there were many instances of hacking and bankruptcies from various exchanges and wallet providers globally. Investors should try to limit their exposure to third parties, use hardware or paper wallets and choose exchanges that adhere the highest standards.
Self-Custody Risk - The good thing about Bitcoin is that you are in charge of your wealth without the need of any intermediaries. The bad thing is that there aren’t any company or intermediaries to call in case of a transaction error or if a wallet's private keys is lost. The loss of your private keys is irreversible.
How can people invest in CryptoAssets?
There are many ways to invest in cryptoassets: web-based platforms that facilitate peer-to-peer transactions, centralized exchanges allowing fiat-to-crypto transactions, traditional managed investment funds and general ATMs globally. I expect many other methods will find their way into the mainstream public going forward.
Can you arbitrage cryptocurrencies?
The cryptoassets space is still quite inefficient and fragmented, creating some excellent arbitrage opportunities. There are, however, some bottlenecks. Let’s look at a recent example, Bitcoin value in Zimbabwe reached $13k while in the west it was $8k. While this creates an incredibly lucrative arbitrage opportunity, investors would still face the FIAT repatriation problem. Some less profitable methods are more accessible, such as Cash-and-Carry Arbitrage using Futures contracts (CBOE, CME), or Strike Arbitrage using Options contracts (LedgerX).
How can you cash-out of crypto-currency?
The easiest way to cash-out of a CryptoAsset investment is to convert your holdings to FIAT through a centralized exchange. The liquidity in the sector has now reached a comfortable level for most investors to trade in and out of FIAT. That said, I do prefer to think that one day, I won’t have to “cash out.”